Hopes for the survival of Debenhams have risen after the department store confirmed it had agreed a £40m lifeline from lenders and a deal with a major supplier to improve the quality of its own-label clothing.

The company said it had secured an additional 12-month credit facility with its existing lenders as “a bridge” towards longer term refinancing.

Sergio Bucher, the chief executive, hailed the new 12-month credit facility, which was first flagged in the Guardian, as a “first step in our refinancing process”. The company’s share price closed up 1p at 4p.

Debenhams secures £40m lifeline as it battles for survival

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“The support of our lenders for our turnaround plan is important to underpin a comprehensive solution that will take account of the interests of all stakeholders, and deliver a sustainable and profitable future for Debenhams,” he said.

Analysts said the deal with supplier Li & Fung, a Hong Kong-based conglomerate that makes clothing for many British retailers, was also a significant step.

“It may be seen as confirmation that a very serious global sourcing operator does not regard Debenhams as a write-off,” said Tony Shiret, a retail analyst at Whitman Howard in a note.

The deal comes despite the fact that Debenhams’ financial difficulties are likely to have deteriorated in recent weeks as insurers have withdrawn cover on credit for those selling goods to the department store, so that many are now demanding payment up front.

Analysts agreed that Debenhams’ future still depended on it being able to finalise the refinancing of £520m in debt facilities, including £320m of loans and £200m of bonds, which are due to be repaid next year.

Laith Khalaf, senior analyst at broker Hargreaves Lansdown said: “This [new £40m] debt agreement is a lifeline for Debenhams, but isn’t going to solve its fundamental problems. Trading conditions remain extremely challenging, and the business has a tightrope to walk between cutting costs and investing in improvements.

“Debenhams’ longer-term prospects are still in the balance, and recent data showing a deterioration in the UK economy isn’t exactly going to help matters.”

A rescue deal is expected to include a debt for equity swap alongside the closure of tens of stores and renegotiation of rents with landlords via an insolvency process called a company voluntary arrangement.

It’s also possible that Debenhams will seek to raise money from shareholders including Mike Ashley’s Sports Direct, which owns close to 30% of the company.

In order to facilitate his possible involvement in a deal, Ashley is understood to have been given access to limited information about the store chain after signing a non-disclosure agreement.

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But the loan from Debenhams’ existing lenders could be seen as a snub to Ashley, who pushed out the company’s chairman, Sir Ian Cheshire, in January.

That move came after Cheshire rejected a £40m interest-free loan from Sports Direct because it came with a demand for security over some of Debenhams’ assets that would have given Ashley’s company a preferential position over other shareholders.

Sports Direct also demanded the right to add another 10% to its shareholding without making a formal takeover bid for the whole company.

Under Takeover Panel rules anyone with more more than 29.9% must make a bid for the whole company. Debenhams feared such an agreement would give Ashley control of the company on the cheap.